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Optimal scale in the Italian gas distribution industry using data envelopment analysis

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  • Erbetta, Fabrizio
  • Rappuoli, Luca
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    Abstract

    The Italian gas distribution industry presents a high degree of fragmentation. However, the tendency between 1970 and 1998 was a concentration process. Available evidence supports the thesis that local distributors have undertaken a process of scale enlargement. This raises the question of characteristics of returns to scale for such operators as well as the optimal scale at which they should operate. Returns to scale are analysed by data envelopment analysis (DEA) methodology. The results show that the output space in which DMUs attain a high level of scale efficiency is widespread, thus indicating an unexpected return to scale characterisation. Technology shows increasing returns only for the smallest units, but such an effect is rapidly exhausted in favour of a regime of constant returns to scale. The main managerial conclusion is that an improvement of productivity may be reached via an intensification of the merging process involving local distributors operating at a small scale. Moreover, the concentration process appears as an "attainable" objective since the critical dimension, which permits the exploitation of positive returns to scale, is quite small.

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    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 36 (2008)
    Issue (Month): 2 (April)
    Pages: 325-336

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    Handle: RePEc:eee:jomega:v:36:y:2008:i:2:p:325-336

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    Keywords: Energy DEA Efficiency Optimal scale;

    References

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    11. Bagdadioglu, Necmiddin & Waddams Price, Catherine M. & Weyman-Jones, Thomas G., 1996. "Efficiency and ownership in electricity distribution: A non-parametric model of the Turkish experience," Energy Economics, Elsevier, vol. 18(1-2), pages 1-23, April.
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    Cited by:
    1. Huang, Yi-Ju & Chen, Ku-Hsieh & Yang, Chih-Hai, 2010. "Cost efficiency and optimal scale of electricity distribution firms in Taiwan: An application of metafrontier analysis," Energy Economics, Elsevier, vol. 32(1), pages 15-23, January.
    2. Brkic, Dejan, 2009. "Serbian gas sector in the spotlight of oil and gas agreement with Russia," Energy Policy, Elsevier, vol. 37(5), pages 1925-1938, May.
    3. Tiziana Cuccia & Calogero Guccio & Ilde Rizzo, 2013. "Does Unesco inscription affect the performance of tourism destinations? A regional perspective," ACEI Working Paper Series AWP-04-2013, the Association for Cultural Economics International, revised Oct 2013.
    4. Frija, Aymen & Buysse, Jeroen & Speelman, Stijn & Chebil, Ali & Van Huylenbroeck, Guido, 2010. "Effect of scale on water users’ associations’ performance in Tunisia: nonparametric model for scale elasticity calculation," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 95982, African Association of Agricultural Economists (AAAE) & Agricultural Economics Association of South Africa (AEASA).
    5. Tiziana D’Alfonso & Cinzia Daraio & Alberto Nastasi, 2013. "Assesing the Impact of Competition on the Efficiency of Italian Airports," DIAG Technical Reports 2013-01, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    6. Ertürk, Mehmet & Türüt-AsIk, Serap, 2011. "Efficiency analysis of Turkish natural gas distribution companies by using data envelopment analysis method," Energy Policy, Elsevier, vol. 39(3), pages 1426-1438, March.

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